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Back-to-back cuts: BSP follows Fed action
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Inflation settles at 2.5% despite food-price uptick
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December
20
The Gist
A daily dose of market updates and smart investment strategies to guide your portfolio decisions
Today's Report
Your Morning Fix
- The Bangko Sentral ng Pilipinas (BSP) reduced its key rate by 25 basis points to 5.75% for the third consecutive meeting, aligning with most analyst expectations, but signaled fewer cuts in 2025.
- The Philippines’ balance of payments (BoP) deficit widened to USD 2.276 billion in November, the largest in 26 months, due to increased foreign debt repayments, according to the BSP.
- Following the US Federal Reserve’s hawkish cut, the peso fell to an all-time low of PHP 59 against the US dollar on Thursday, its third time hitting this record low this year.
- Japan’s core inflation accelerated in November due to rising food and fuel costs, putting pressure on the central bank to raise interest rates further despite maintaining them at 0.25% recently.
- Mexico’s central bank reduced its benchmark interest rate by 25 basis points to 10.00%, with the possibility of larger rate cuts in future meetings due to the progress on inflation. This marks the fifth rate cut this year from a record high of 11.25% in March.
Our Portfolio Recommendation
We are shifting our overweight allocation to equities as we anticipate more upside potential despite expected interest rate cuts by the Banko Sentral ng Pilipinas (BSP) and the US Federal Reserve. With yields projected to trend lower, investors can lock in gains from investments in fixed income and reallocate to equities, which we expect will offer higher returns as a result of improving market sentiment and stronger earnings growth. This strategy aims to capture the momentum in the equity market while maintaining a balanced exposure to fixed income.
| 2024 Metrobank Forecast | 2025 Metrobank Forecast | 2026 Metrobank Forecast | |
|---|---|---|---|
| GDP | 5.6% | 6.2% | 6.2% |
| Inflation | 3.2% | 3.2% | 3.0% |
| BSP Target Reverse Repurchase Rate | 5.75% | 5.00% | 4.25% |
| Federal Funds Rate | 4.50% | 3.75% | 3% |
| USD/PHP | 58.8 | 57.9 | 56.5 |
CHART OF THE DAY
Chart of the Day
BSP continues monetary easing with 25-basis-point cut
The Bangko Sentral ng Pilipinas (BSP) reduced the Reverse Repurchase (RRP) rate by 25 basis points (bps) in its last Monetary Board meeting for the year on December 19. This is the third time that the BSP cut its policy rate in 2024, bringing in a total of 75 bps worth of cuts, slashing the target RRP down to 5.75%. Sources: Bloomberg, Metrobank Research
Featured Reports
More Reads
USD/PHP trades rangebound despite strong rally in dollar
- Despite the US Fed’s hawkish pause and the greenback’s incredible rally against peers overnight, the USD/PHP exchange rate opened barely unchanged at 59.00 as sizable offers at the all-time high level of 59-figure remained present.
- For the rest of the day, the currency pair traded within the 2-centavo range of 58.98-59.00, with dips understandably non-existent as dollar strength and strong demand from importers anchored the local pair.
- Not much reaction was seen after the BSP reduced rates by 25 bps as widely expected.
- USD/PHP eventually closed at the all-time high level of 59.00.
READ MORE
Peso GS yields sell-off ahead of BSP meeting
- Local GS yields rose sharply yesterday due to a selloff in US Treasuries overnight, with most players de-risking in anticipation of slower BSP rate cuts in 2025.
- The BSP’s 25-bp rate cut yesterday had minimal market impact as it was widely expected.
- Benchmark yields increased by 9.5-15 bps, except for the FXTN 20-27, which fell 5.5 bps due to strong end-user demand.
- At current levels, we recommend investing in shorter-dated securities to mitigate risk.
READ MORE
PSEi moves lower amid risk-off sentiment
- The Philippine Stock Exchange index (PSEi) extended its decline by 73.48 points to 6,395.60, erasing all gains made earlier in the year, as weaker overseas markets dampened investor sentiment.
- More foreign outflows come the next trading day on the back of FTSE rebalancing for the Philippines. Estimates are at USD 2 million worth of net outflows.
- In corporate news, Filinvest Land Inc. plans to raise up to PHP 12 billion through fixed-rate peso-denominated retail bonds to fund its expansion while increasing public ownership of its REIT subsidiary, Filinvest REIT Corporation.
READ MORE
USD/PHP trades rangebound despite strong rally in dollar
- Despite the US Fed’s hawkish pause and the greenback’s incredible rally against peers overnight, the USD/PHP exchange rate opened barely unchanged at 59.00 as sizable offers at the all-time high level of 59-figure remained present.
- For the rest of the day, the currency pair traded within the 2-centavo range of 58.98-59.00, with dips understandably non-existent as dollar strength and strong demand from importers anchored the local pair.
- Not much reaction was seen after the BSP reduced rates by 25 bps as widely expected.
- USD/PHP eventually closed at the all-time high level of 59.00.
READ MORE
Peso GS yields sell-off ahead of BSP meeting
- Local GS yields rose sharply yesterday due to a selloff in US Treasuries overnight, with most players de-risking in anticipation of slower BSP rate cuts in 2025.
- The BSP’s 25-bp rate cut yesterday had minimal market impact as it was widely expected.
- Benchmark yields increased by 9.5-15 bps, except for the FXTN 20-27, which fell 5.5 bps due to strong end-user demand.
- At current levels, we recommend investing in shorter-dated securities to mitigate risk.
READ MORE
PSEi moves lower amid risk-off sentiment
- The Philippine Stock Exchange index (PSEi) extended its decline by 73.48 points to 6,395.60, erasing all gains made earlier in the year, as weaker overseas markets dampened investor sentiment.
- More foreign outflows come the next trading day on the back of FTSE rebalancing for the Philippines. Estimates are at USD 2 million worth of net outflows.
- In corporate news, Filinvest Land Inc. plans to raise up to PHP 12 billion through fixed-rate peso-denominated retail bonds to fund its expansion while increasing public ownership of its REIT subsidiary, Filinvest REIT Corporation.
READ MORE